- Main Trend (weekly): up
- Intermediate Trend (daily): up
- Short-Term Trend (480&288min): down/neutral
As mentioned already several times in the previous newsletters, the normal expectation was for the market to back-test the break-out above resistance. This is exactly what happened last week as market dropped with conviction and ES is now back-testing the impulse up break-out. YM is diverging again having already failed the back-test by dropping below the resistance level. Of course, YM never confirmed the up impulse, so the ES back-test is more important. What happens next is key and the normal expectation would be for the previous resistance to provide support even if, in the end, it will fail.
On the daily cycles, we can see nicely the brutality of the decline. The market basically lost aprox. 80 points in just 2 days and sliced directly through the support levels. In fact ES is now close to confirm a down impulse. As we were mentioning last week, breaking directly the support levels before resistances trigger is very bearish, although it depends a lot on what the market does in the next 2-3 days. If the break-down is confirmed and the market cannot manage to bounce back to or even above the support levels, then the bearishness will be confirmed. We do have to mention that both ES and YM triggered LREs (lower risk entries) for longs on Friday, so a near term bounce (maybe after a minor new low) would be normal expectation based on that.
Both 480 and 288min cycles triggered new resistances close to the highs after which the market dropped strongly. It is interesting that support levels did not trigger, so once they will, they will be very important with a bounce from there being the normal expectation.
In conclusion, after being range bound for quite a while the market finally broke out, or better said down. We have confirmed down impulses on all short time frames - 5, 15, 60, 135 (not shown) and we broke below support on the daily cycles as well. The speed of the decline was very high so the market is short-term oversold, however it is important to see if but also how the bounce will shape up. All the impulses down need to unwind, so some bounces followed by corrections to put in BRs and ENDs is the normal expectation. Bigger picture, the break-down below support on the daily is very important and if the market does not bounce towards the break-down levels in the next 2-3 sessions, that will be a serious warning for longs.